By Avi Salzman
Rare earth miner Molycorp (MCP) jumped 13% today after a report came out indicating that the Pentagon wants to make sure the country has an alternative supplier of rare earth materials other than China. Rare earths are used in drone aircraft as well as precision-guided munitions, notes Dahlman Rose analyst Anthony Young.
“We believe that if the US DoD decides to enter into an off-take agreement with any company, it will likely be Molycorp. But any off-take agreement, broadly speaking, would benefit the entire industry.”
Molycorp has struggled lately as rare earth prices have fallen, but Young thinks that demand for the materials could rise.
“It is too early to say definitively what steps the US government may take, but we believe this report highlights how critical rare earth elements are in defense and electronic applications. Over the medium to long term, we expect demand for these materials to trend significantly higher in defense and commercial applications, particularly if prices remain at reasonable levels.”